Pricing Your Home: The Science, the Art & the Unknown

August 16, 2010

If you’ve ever been through the home selling process, you may have met with more than one agent before selecting one to list your home. In that case, you probably received more than one opinion on the price at which your home should be listed. Perhaps the agents’ valuations of your home were within a few thousand dollars of each other, but it’s just as likely that they were wildly different. For example, I have a listing where my clients had received pricing estimates from other agents that ranged from $295,000 to $340,000. That’s quite a significant range, and there’s a reason this can happen…

Contrary to what Zillow may have you believing, there is no simple formula for pricing homes in our market. Forget price-per-square-foot. Forget zip code analysis. Forget what your neighbor’s house sold for last year. A home’s value involves many variables, some of which can be factored into a computerized analysis, but most of which require actual knowledge of the local inventory and current market conditions. And then there’s the flukiness that always factors in when dealing with human decision-making, which is nearly impossible to predict. But let’s take a look at each of these aspects, as I walk you through the steps I follow when determining pricing for my listings:

Step 1) The Science

Using the “Comparative Market Analysis” tool in the MLS, I first enter the basic specs for my list property. This includes things like address, condo v. single family, number of rooms, bedrooms, baths, garage and/or parking spaces, square footage, etc. Then I have MLS search for other homes that are nearby and have similar specs, which are currently on the market, under agreement, and recently sold. Here’s where the software’s usefulness ends. Sometimes there are way too many results and sometimes there are not enough. Sometimes the results are simply not comparable to my target property. This is where it gets fun!

Step 2) The Art

First I go through the results list generated by MLS and review each listing in detail — many of the homes I will already have seen during a broker tour, open house or client showing, and this helps me A LOT in determining whether they are actual “comps” for my new listing. At this point, I’m looking at things like the property’s condition, the very specific location (because in Cambridge and Somerville, the desirability of a street or neighborhood can change from block to block), proximity to the T, the home’s layout, ceiling height, outdoor space, etc.

If I haven’t seen an actual property in person myself, I’ll check around with my colleagues and can generally get more info that way. Sometimes I will also do a drive-by or, for the homes that are currently on the market, I may schedule a showing with the list agent or call him/her for more info. I consider all of this my due diligence in arriving at the most realistic current value for my listings. However, there’s still one more element to factor in and it’s not so simple.

Step 3) The Unknown

Because every home is worth exactly what one person is willing to pay for it, and because everyone has different needs, wants, priorities and quirks, there’s a certain element of chance that has to be taken into consideration with pricing. Sometimes it works in favor of sellers, as was the case with the recent sale of an architect-designed Cambridge home that was listed at right around a million, but was purchased for $1.5! This ONE buyer really loved the home’s design, expected a bidding war, and wanted to win. Happy sellers.

On the other hand, sometimes a house will have a feature such as an au pair suite or a great 2-car garage, that should, in theory, raise the price over equivalent properties without these amenities, and yet, for buyers who don’t have a particular need for these things, they may be entirely unwilling to pay a higher price. So where does that leave us on pricing?

Different agents have different pricing approaches, but one point most will agree on is that the initial asking price should be considered just that: a starting point. A good agent will pay close attention to the interest a new listing is receiving, the feedback coming in from buyers and their agents, and shifts in the market, and reposition the property as necessary to generate offers.